The latest U.S. economic data shows inflation remaining stable in July 2024, while consumer spending increased, according to figures released today by the Bureau of Economic Analysis (BEA).
The Core Personal Consumption Expenditures (PCE) price index, a key inflation measure closely watched by the Federal Reserve, rose 0.2% m/m in July, matching the increase seen in June. On a year-over-year basis, the core PCE price index was up 2.6% y/y, unchanged from the previous month’s read.
Headline PCE, which includes volatile food and energy prices, also increased by 0.2% for the month and remained steady at 2.5% y/y, indicating persistent underlying inflationary pressures.
Link to U.S. Personal Income and Outlays Report for July 2024
Meanwhile, consumer spending showed signs of resilience, with personal consumption expenditures rising by 0.5% in July, accelerating from the 0.3% increase in June and handily beat the 0.2% m/m forecast. In inflation-adjusted terms, real PCE grew by 0.4%, driven by a 0.7% increase in goods spending and a 0.2% rise in services expenditures.
The personal income growth rate grew slightly, increasing by 0.3% m/m in July compared to 0.2% m/m in June, but below the 0.4% m/m reading in May, signaling income growth is still trending lower overall. Disposable personal income also rose by 0.3% m/m vs. 0.1% m/m previous
The personal saving rate continued its downward trend, dropping to 2.9% in July from 3.1% in June, reaching its lowest level since December 2022.
U.S. dollar vs. Major Currencies: 5-min
Overlay of USD vs. Major Currencies Chart by TradingView
The U.S. dollar exhibited a volatile reaction following the release of the personal income and outlays report. Initially, the greenback saw a sharp surge against most major currencies, with the most pronounced gains against the Japanese yen (JPY) and Swiss franc (CHF). This initial spike likely reflected market participants’ immediate response to the steady inflation data and stronger-than-expected consumer spending figures.
However, the dollar’s gains were short-lived and quickly reversed. This mixed reaction suggests that while the data was initially perceived as dollar-positive, broader market themes quickly reasserted themselves. The persistent strength against the yen likely reflects the ongoing divergence in monetary policy between the Federal Reserve and the Bank of Japan, with the latter maintaining an ultra-low interest rate policy.
The quick reversal against other major currencies, particularly the euro and commodity-linked currencies (CAD, AUD, NZD), may indicate that market participants are still cautious about the Fed’s future policy path. Despite the steady inflation and strong consumer spending, there’s ongoing speculation about potential rate cuts later in the year, which could be weighing on sustained dollar strength.
Moreover, the muted overall reaction suggests that the data, while important, didn’t exactly set the forex world on fire. It seems the market collectively shrugged its shoulders and said, “Meh, wake me up when something really exciting happens.”
Investors appear to be in a wait-and-see mode, potentially looking ahead to upcoming economic indicators, including the always anticipated U.S. monthly jobs report next week, for clearer directional cues.